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June 18, 2024

Understanding rising health care costs

How an employee benefits consultant can help with rising health care costs.

The cost of health care in the U.S. is rising fast, representing 17.3% of the gross domestic product in 2022 and expected to increase to 19.7% by 2032.

High health costs can have a big impact on employees. When workers spend more of their salaries on medical bills, they tend to look to employers like you for help.

But you’re spending more, too. You want to find cost savings that protect your company and teams. That’s where better employee benefits come in.

Understanding why health care costs are rising can help you make confident decisions about benefits. Let’s examine the reasons for this upward trend in costs.

Health care worries for employees and employers

You can’t solve a problem until you know where it originated. That’s why it’s important to understand your employees’ thoughts about rising health care costs. Then, you can compare this with your worries. You’ll have a better view of what to do next.

What employees worry about

Almost 50% of people worry about how they’ll afford their monthly insurance costs. In 2023, average annual health insurance premiums increased by 7%, with single coverage costing $8,435 and family coverage costing $23,968.

About 25% of insured and 61% of uninsured people don’t seek medical care due to rising costs. Delaying treatment can cost more later, forcing people to employ other less ideal financial measures, such as using their retirement savings or credit cards.

Health care costs started growing faster than wages in 2009. While increased salaries have recently helped balance the playing field, debt from previous medical care has built up. The same is true of untreated medical problems, including chronic disease.

It can create mental health issues like stress and anxiety. Employees might have more trouble at work and need to take more sick days. Employers can help by providing more comprehensive health plans or boosting salaries where practical. If this doesn’t occur, employees may leave their jobs to find better pay and benefits elsewhere.

What employers worry about

Some employers think health benefits will cost a lot more in 2024. They expect to pay 5.4% more per employee. Total employer health care costs could rise to 10% by 2026.

Depending on the business size, some employers must follow laws like the Affordable Care Act. This includes offering employees coverage for certain services, such as hospital visits, prescription drugs, and mental health care.

The Affordable Care Act doesn’t make you pay for every medical cost. But you’re left looking for ways to save money while following the rules.

Some employers take away certain kinds of coverage. They might also ask workers to pay more for the company's health plan.

Other employers control cost growth with a new health policy that emphasizes prevention. They tell employees how to use wellness programs and avoid medical problems. This approach can help limit total health care spending. 

Another solution is to offer better employee health benefits. To do that, you need to know what’s best for your workers and their families. An employee benefits consulting firm can help you make these choices.

The reasons for rising health care costs

All health care services are getting more expensive, from regular doctor visits to emergency hospital care. But why? Our new report, 2024 Employee Health & Benefits Trends: The Evolving Workforce, explores factors contributing to rising health care costs.

An aging population

Due to medical research advancements, people are living longer. This creates new challenges for the busy public health system.

People over 65 tend to spend more on medical care, especially if they have chronic diseases. Up to 95% of patients in this age category have at least one chronic condition, and another 80% have two or more. Costs are likely to increase as this population grows.

Some of this will be Medicare spending. Employers who offer private health insurance will also see higher costs.

More chronic diseases

Chronic conditions aren’t just for people over 65. Allergies, asthma, diabetes, and certain types of cancer can impact younger populations.

When people avoid health care services, chronic disease control becomes more critical and expensive. These conditions cost billions of dollars per year in medical fees and lost productivity.

Different needs

Every generation has different health care needs. That means there’s no one way to keep everyone healthy. This can increase costs in many ways.

Boomers (1946-1965)

People in this generation focus on controlling health spending. With 71% struggling with retirement savings and 27% having none, medical costs are a serious concern. Seventy-one percent say health insurance is a priority. Another 84% look for wellness perks to help them stay healthy and avoid primary care.

Gen X (1966-1980)

This group likely handles health care costs for children, elderly parents, and themselves. That means rising fees might hit them the hardest. Sixty percent say financial stability is one of their biggest causes of stress.

Millennials (1981-1996)

Millennials may not have as many chronic diseases. However, they tend to have higher student loan debt. This makes it more difficult for them to pay for medical insurance and health bills.

Gen Z (1997-2012)

Most people in this generation are worried about costs. They’re 1.4 times more likely to have financial stress than other generations. They also have more mental health concerns, with 45% saying they have high stress and burnout from work.

That means Gen Z might have a hard time paying for medical care. They may have fewer age-related illnesses, but they could have more stress and anxiety to treat.

Higher overall costs

Health care isn’t the only thing that’s more expensive. Inflation has led to higher costs for almost everything.

Seventy-seven percent of Americans are worried about money. Many must choose between going to the doctor and everyday needs like food.

These decisions can impact the whole body. Medical issues become more serious and expensive before they’re treated. The public health system is forced to use more time and resources to address these problems, which can lead to increased costs due to supply and staffing shortages.

Rising prices impact more than the patient. Medical supplies and technology have become more expensive, too. This means doctors and hospitals must pay more to offer the same care.

The lasting effects of the pandemic

Emergency responses to COVID-19 cost the health care system a lot of resources and left medical workers burned out. The pandemic also affected supply chains, caused people to cancel optional health visits, and increased telehealth and virtual care use.

Lingering impacts continue to change the way patients interact with health care. For example, demand for elective surgeries skyrocketed, disease prevention and mental health became more of a focus, and cost transparency became both expected and required. That means the health system’s already limited resources are being stretched thin, translating to higher costs for all kinds of care.

Changing behaviors

When costs are high, people make different health decisions, including how they eat, exercise, address symptoms, and seek health care. Employers keep up by changing the kinds of benefits they provide.

This creates a loop. Employers and workers respond to each other’s decisions. But so do insurers and health care providers. Prices can increase as everyone makes different choices to get through a tough financial time.

For example, nearly one in three health visits or services happens on a telehealth platform. But those numbers are changing as people return to in-person health care. That means the focus on funding and benefits might change. The price of virtual health services could go up as a result.

Manage health care costs with Marsh McLennan Agency

Your employees need your help to handle rising medical costs. One in three people would forgo more money if it meant better health care support for them or their families

You don’t have to choose between your employees and your business. Selecting the right benefits can help make your workers happier and healthier. It can keep them and your company working as efficiently as possible.

Download our 2024 Employee Health & Benefits Trends: The Evolving Workforce report to learn more about what your employees want from their benefits.

Create a benefits plan that meets the needs of every generation in your workforce. Our benefits consultants provide compliance support, help develop employee communication strategies, support wellness program implementation, and more.

Contact a benefits consultant today.

Reach out to a consultant today.

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